Dear Mr. President

By James Kwak

There have been (admittedly unclear) indications from your administration that you may accede to the Republicans’ demand to extend the Bush tax cuts for everyone.  I urge you not to do this.

The question is: Is it better to extend the tax cuts for everyone or for no one? The answer is to extend them for no one.

The Bush tax cuts have always overwhelmingly benefited the rich, not the middle class, and that is no less true today than when they were enacted. They were bad policy then and they are bad policy today. Extending the tax cuts would dramatically enrich the wealthy relative to everyone else. 65.5 percent of the total benefit would go to the top quintile by income, 26.8 percent to the top 1 percent, and 14.7 percent to the top 0.1 percent.*

Leaving aside discredited, Reagan-era theories about trickle-down economics, there are two main arguments for extending the tax cuts:

1. You shouldn’t “increase”** taxes during in tough economic times.

It is true that tax increases would have a modest first-order negative impact on economic growth. But that impact will be small (per dollar of net fiscal impact) for exactly the same reasons that tax cuts are a poor stimulus. The multiplier for tax cuts is far lower than the multipliers for virtually every other type of government spending, especially aid to state and local governments. In particular, the economic impact of tax increases is smaller when they go to the rich rather than the middle class, because the rich consume a smaller portion of their marginal income. In addition, letting the tax cuts expire would have positive second-order effects because it would improve the government’s fiscal balance, which is widely (though perhaps incorrectly) perceived as a source of risk to the economy.

Now, it might be preferable to extend the tax cuts only until the economy recovers and then let them expire. But that is probably politically infeasible, and in any case creates the risk that, at that point, Congress would then make the tax cuts permanent.

2. The tax cuts will help the middle class.

Yes, but they won’t help very much. If the tax cuts are extended, the average benefit for tax units (roughly speaking, households) in the middle income quintile will be $880 per year.*** By contrast, tax units from the 80th to 99.9th percentile will gain $6,094 each, and the top 0.1 percent–those with over $2 million in annual income–will gain $339,473 each.

Now, $880 means a lot to a middle-class family, and I will no doubt be called heartless for saying we should extend the tax cuts for no one rather than everyone. But letting the tax cuts expire will be better for the middle class, for one big reason–actually, 3.7 trillion reasons.

$3.7 trillion is the figure that is generally cited as the projected ten-year impact of the Bush tax cuts. Letting the tax cuts expire will eliminate $3.7 trillion from the projected national debt with one stroke. Why does this help the middle class? Because Social Security and Medicare are currently under assault. The national debt is being used as a bogeyman to frighten politicians (and the people who elect them) into agreeing to significant reductions to Social Security and Medicare.

Yet middle-class households need Social Security and Medicare far more than they need $880 of current-year income. Our country faces the very real threat of a retirement security crisis, since saving via 401(k) plans is shockingly low; in 2007, the average retirement account balance for a household where the head of household was between ages 55 and 64 was only $63,000 (Federal Reserve Survey of Consumer Finances, Table 6). That figure is surely lower today, after the financial crisis. And your administration knows very well the problem of health care cost inflation, having done more to attempt to solve this problem than any other administration, ever.

The single most important thing you could do to protect the retirement and health care security of the vast majority of Americans would be to let the tax cuts expire. The CBO (full document, Table 1-7) projects the cost of those tax cuts in 2020 at $368 billion, or 1.6 percent of GDP. The tax cuts mean the difference between a federal deficit of 3.0 percent of GDP (probably sustainable) or 4.6 percent of GDP (probably unsustainable). Removing that enormous wedge from the structural deficit would reduce the current pressure for “entitlement reform” and give the cost-saving provisions in your health care reform bill time to work.

In short, letting the tax cuts expire would be better for the middle class (and even more so for the poor–the lowest quintile would gain only $45 from extension), and for the country, than extending them for everyone.

Since you have a reputation for putting the welfare of the country before your political fortunes and those of your party, I hope this should be enough to convince you. But I believe this would also benefit you politically. If the American people want to know why their taxes will be higher in 2011 than 2010, this is what you can say:

“We face a grave threat to our nation’s future prosperity. That threat is a ticking time bomb set by my predecessor’s administration. In 2001 and 2003, my predecessor pushed through enormous tax cuts for the very wealthy, using small tax cuts for the middle class as a fig leaf. Instead of being honest about the impact this would have on our national finances, his administration timed the tax cuts to expire on December 31, so they could pretend they were smaller than they actually were.

“The Republicans want to let this time bomb explode. They want to make these tax cuts for the wealthy permanent, meaning that families making more than $2 million would save $300,000 in taxes, while ordinary families would save less than $1,000. This is at a time when our governments–federal, state, and local–lack the resources necessary to provide basic services to our citizens, secure our borders, educate our children, provide health care to the elderly, and invest in our economy.

“My proposal is to extend the tax cuts for the middle class, but not for the wealthy. The Republicans, who control the House of Representatives [see Update below], insist on permanent tax cuts for the rich–tax cuts that load debt onto our children and grandchildren for decades to come. They are willing to sacrifice our future prosperity so that millionaires can save hundreds of thousands of dollars.

“I refuse to force future generations to pay for our own failure to make hard choices. I refuse to allow an enormous hole in the national budget that will threaten the long-term health of Social Security and Medicare. Because this is the price that the Republicans are demanding that I pay in order to extend the middle class tax cuts, all of the tax cuts will expire on December 31–under the law passed by the Bush administration.”

I’m sure your speechwriters, pollsters, and strategists can come up with something better (and didn’t you once say that you were a better speechwriter than your speechwriters?) than I came up with while lying in bed last night. But come up with something.

* All figures, unless otherwise noted, are from the Tax Policy Center. These figures also assume extension of the AMT patch. Note that these figures exclude the impact of making permanent the repeal of the estate tax (a permanent repeal is assumed in both scenarios); including that impact would skew the benefits even more heavily toward the rich.

** Of course, it is President Bush and the 2001 and 2003 Congresses that are increasing taxes on January 1, 2011.

*** The actual figure is probably slightly less than $880, since the Tax Policy Center’s analysis also includes extension of the AMT patch, so some of the $880 is due to the AMT patch, and some of it is due to extending the Bush tax cuts. Extending the AMT patch does not benefit the very rich (since they are above the AMT threshold in any case), so all of their benefits are due to extending the Bush tax cuts.

Update: The Huffington Post put this up on their front page (linking to a HuffPo-hosted version of this post), which always terrifies me–what if I made a mistake? So I reread the post, and, well, I made a mistake (in the fictional speech). The Republicans don’t control the House yet, so theoretically the Democrats still have majorities in both chambers. But they still face the Party of No in the Senate, so practically speaking the Democrats cannot pass Obama’s plan on their own. I suppose it is possible they could use reconciliation to get past the filibuster, but having just suffered a crushing loss in the midterm elections, the democratic legitimacy for such a tactic would be questionable at best.

80 responses to “Dear Mr. President

  1. I’m not holding my breath; please see (if you haven’t already) http://nyti.ms/bVz4W8 and http://bit.ly/dqpt6J

  2. Exactly what I’ve been saying! I’m lower middle class and certainly need every cent I can get, but I am more than willing to accede my middle class tax cut to make sure that the $250K+ folks don’t get theirs too. My reasons are probably more schadenfreude than economic, but there’s that too. We already lost the battle in the Wall Street vs Main Street bailout – let’s not lose this one too.

  3. But letting the hugely unfair Bush tax cuts expire would take guts…and that’s precisely what our president and our elected “representatives” lack.

  4. Amen brother, let them expire. All of them. Any Republican taking any other view is NOT a fiscal conservative.

  5. Gridlock may be our buddy this time.

  6. perspective:

    http://economistsview.typepad.com/economistsview/2009/10/where-did-the-bush-tax-cuts-go.html

    commentary:
    When you are in charge, you act like it. I would really like to see this president act like he’s the President. I’ll say the same thing about his predecessor, too…
    If you want to be a leader, you actually have to lead. This means having a spine and a brain and using them both.

  7. Republicans are certainly inspired by the prospect of more regressive taxes but what really excites them are the resulting huge deficits that require “grownup” decisions to finally raze the new deal.

  8. You could be right about the letting the tax cuts expire, but your speech is terrible. Obama should not blame today’s problems on the Repubs. It’s probably not true, but worse, it just ensures that the Repubs will fight him with everything they’ve got. And now they’ve got a lot.

  9. Why not suggest the fair way to close the gap on our budget deficit… Do away with capital gains. All income should be ordinary income. I’m not sure I’ve ever understood why earning money outside of “employment” should be taxed at a lower rate? Completely unjust. Mr. Kwak, would that solve our problem?

  10. In what universe are the Republicans not going to fight Obama with everything they’ve got?

  11. AGREED. I’m a middle class small business owner. Let them all expire.

  12. Jimmy A, IIRC taxing capital gains as ordinary income would raise approx. $75 billion a year. To include it in the FICA tax system would add several times that (as would including unrealized capital gains in the tax base).

    I disagree with James that Uncle Sam needs to cut spending or raise taxes right now (the trade deficit is more important than the budget deficit and the output deficit is more important than either). I’d rather see the Bush tax cuts converted into a refundable “standard tax credit”. Congressman Bob Filner proposed a bill a few years ago to replace the Bush tax cuts with $2000 per adult, $1000 per child tax credits.

    http://www.votesmart.org/speech_detail.php?sc_id=58061&keyword=&phrase=&contain=

  13. I would recommend on this debate taking a read of Ellen
    Brown’s, from webofdebt.com, analyzing another variation
    of kicking the can of the federal debt:
    QE2: It’s the Federal Debt, Stupid!

    http://www.truth-out.org/qe2-its-federal-debt-stupid65050

  14. Amen.

    One of the things that really bugs me is the Republican line that making only the rich give up their tax cuts is “class warfare.” Progressives need to start coming up with effective responses to that bogus line: for instance, it’s no more class warfare than parents making kids go to bed earlier than they do is a “double standard.” (Surely somebody could come up with something better than that.)

    I’d give up my share to know it was for the common good, and I’d like to see the President fight this one right down to the veto.

  15. James Peterson

    I literally woke up this morning thinking about the Bush era tax cut expiration. So, I’m most pleased to see this Open Letter to the President. My thoughts were there was a reason to have the tax cuts expire and that was because the prior Administration was of the opinion that seven (7) years was/is sufficient time for the very wealthy to bank and take advantage of new income for investment and other purposes and that the U.S.Treasury would begin to recoup its losses after December 31, 2010. Moreover, not one job will be created from the tax cut extension. Why, simply becasue there is $1.Trillion in cash hanging out in Banks vaults and these banking institutions are not making local business loans, so if the tax cuts generate additional income and the business enterprise needs a bank loan to couple with the extra flow of funds where there is no banking loans available, what do we have. Well, a check with insufficent funds.See More

  16. Since everything is a political calculation, I will be striking three, and will be currying Congressional votes to extend the Bush-era tax rates for all Americans – the rich and poor alike – for the next two years (a compromise to the Republicans for their wanting to extend the rates and better yet, never, ever raise taxes for the top income earners in this country, ever again.)

    It’s not in my DNA nor is it in my party’s interest to really defend the Middle Class, much less working folks, and the poor– please, what part of class warfare do you not understand!?

  17. The following editorial ran in the November 3 edition of Retirement Income Journal, under the headline, “End the Bush Tax Cuts”.

    Now that the Republicans have recaptured the House of Representatives—the returns showed a whopping 246-189 advantage for the GOP as of 11 p.m. Eastern time yesterday—we can look forward to gridlock or worse in Washington over the next two years. Forget compromise or progress. Any conservative legislation (or investigation) that the House leadership cooks up will either die in the Senate or perish under the President’s veto pen.

    During the lame duck session, however, the Democrats will have to face the dilemma posed by the Bush tax cut extensions. I hope they eliminate the tax cut entirely. Not just for individuals earning over $200,000 a year and couples earning over $250,000. For everyone. If we’re serious about reducing the federal budget deficit, this should be a no-brainer.

    For anyone who wants to avoid burying our children in debt, any other course of action would be tantamount to financial infanticide. Extending the cuts indefinitely for everyone would add $3 trillion to the national debt over the next 10 years, according to the recent Pew Fiscal Analysis Initiative. Extending the cuts to those earning under a quarter or a fifth of a million dollars a year would still add $2.3 trillion to the debt.

    Killing the tax cuts will be spun as a tax hike. Conservatives will prefer to sustain it with cuts in spending. But where will the cuts come from? A 10% across the board reduction in Social Security benefits over the next 10 years would offset only 36% of the cost of keeping the cuts for another 10 years, the Pew research shows. Eliminating foreign aid would offset another 12%. It would take an across-the-board 6.8% cut in all government spending (except debt service) over the 10 years to cover the entire cost of extending all the tax cuts during that time. That’s what it would cost just to break even on the cuts.

    If we’re serious about reducing the deficit, perhaps we should eliminate the Bush tax cuts and cut federal spending by 6.8%. Better yet, we should focus on shrinking two of the largest and least productive burdens on the public purse: the bloated medical industry and the Cold War military machine. We should spend less on heroic life-saving measures for 90-year-olds, and we should stop wasting money (and the lives of 19-year-olds) on foreign wars. The ill-conceived, badly executed adventures in Iraq and Afghanistan have cost over $1 trillion, and we have nothing to show for it but grief.

  18. I wholeheartedly agree with this idea. As a lower middle-class citizen I hereby gladly give Congress and the POTUS permission to raise my taxes by letting the irresponsible Bush tax cuts expire.

    The only quibble I have with this piece James is that you put all the onus on Obama.

    I think this is misguided. The easiest way to let the tax cuts expire is simply for the House of Representatives to do – ABSOLUTELY NOTHING!

    The Democrats will control the House until after these tax cuts expire. Unlike the Senate, the party in control of the House has almost complete control over what gets voted on.

    Again, to let these irresponsible tax cuts expire, all Nancy Pelosi and the Democratic leadership in the House have to do is – ABSOLUTELY NOTHING!

    Just let them go already…

  19. great letter james. unfortunately he wont listen. he only listens to people in banking and people on the trilateral commission.
    i have been trying to spread the following concept around to various persons in order to make them understand the true nature of the battle we face. when the words “we must compromise with republicans or work bipartisan” what is really being said is “we (poor/middle class persons) must compromise our goals with rich elites (republicans being the representative face of rich elites) or else they will continue to mess up the economy,destroy our social safety net, and much more until we truly submit to their leadership”. that is exactly the game we are playing.
    I wish the president would listen.
    thank you for trying

  20. I think it was this blog that made me familiar with Mr. Howard Gleckman. He has a couple posts related to this over at TAXVOX website.

    http://taxvox.taxpolicycenter.org/blog/_archives/2010/11/4/4672152.html

    http://taxvox.taxpolicycenter.org/blog/_archives/2010/11/9/4675928.html

    President Obama has given me some very deep disappointments the last two years. And it has nothing to do with stimulus or the Republican/Bush fomented economic crisis. It has to do with trying to have a sissy pillowfight against large banksters, a lack of backbone (conceding battles before they are even fought), and now this, the possibility of extending tax cuts for the wealthy. What President Obama apparently doesn’t realize is, there are certain people on the political right who will never like him no matter what he does, and when he waddles in the middle like some soulless buffoon, losing issue after issue, losing battle after battle, all he is doing is losing his core base. And making people like Bloomberg more appealing everyday. Would I agree with Bloomberg on many things??? Probably not, but I bet he would keep his damned backbone on the things I do agree with him on.

    President Obama should know there was a certain time when Al Gore grabbed President Clinton during his term and told him (I am paraphrasing) “Man up!! Get with the program!!!”. Now is that time for President Obama. Man up!!! Get some backbone, or move aside for someone who is willing to fight for the base that voted him in.

  21. I do hope he takes your advice James. GOP will then be a lock for prez in ’12.

  22. James,
    Finally back on track with trenchant ECONOMIC analysis.(You can post the tech stuff elsewhere and I, for one, will actually like to read it) Thank you for this.

  23. Dude,
    That would require Congress and the President doing something. This, letting tax cuts expire, requires doing nothing, which is much more feasible.

  24. I’ve never understood why Americans vote for politicians who act so much against their interests and in favor of a tiny group. Pzreworski’s observation that democratic market economies would fail to achieve a Pareto optimum (loosely speaking) because of decisions to please the median voter, were eminently plausible, but it appears that the US provides a counterfactusl. Why? Is the theory wrong? Is the US not a democracy where the median voter holds sway? Is the median voter so rational that she has given ip the hope of “taxing the rich”? Questions…

  25. A prima facie that would be good -textbook quality- policy. Why is there no support for this? Right. People here preach to the converted. But someone should convert the relevant preachers and their followers. That would help!

  26. @Rien Huizer: “I’ve never understood why Americans vote for politicians who act so much against their interests and in favor of a tiny group.”

    Me, either. At least I didn’t understand it for all the years that I believed the US was a democracy.

    But now I know it’s not. So that explains quite a few things.

    Now I understand that the US is a democracy in the way that Sarah Palin is a political leader. Do you get it now?

  27. The countdown to discovery of truth underlying policy is begun. Should the objective be shutting down “excess supply” the Bush tax cuts will expire. Should the objective be increasing demand, then the tax cuts will be extended.

    “Hard choices” and “sacrifice” is the language of fascists. Reorganization resurrecting sovereign credit systems financing transformative infrastructure projects creating the means by which income taxes can be abolished and corporate taxes reduced, the language of those who know their American history.

  28. Agree with them – it is class warfare.

    And we lost thirty years ago.

    Now we have a depression.

    See how that worked out?

    No good for anybody.

  29. ‎”It would take an across-the-board 6.8% cut in all government spending (except debt service) over the 10 years to cover the entire cost of extending all the tax cuts during that time.”

    Well then, let’s double down! Let’s make an across-the-board 13.6% cut in all government expending (except debt service) over the 10 years to A) cover the entire cost of extending the Bush tax cuts AND B) use the extra 6.8% that would have been spent on still more government largesse and instead point it at paying down the $13.7 trillion in federal debt. We’d avoid raising taxes on anyone, we’d eliminate the $2 trillion budget deficit, and make progress on eliminating the federal debt load we are leaving for our grandkids. Who could not think this is a sound, pragmatic thing to do? Where is the downside to cutting more and more egregious government overspending to avoid federal bankruptcy and collapse of our purchasing power in the U.S. Dollar?

  30. Trickle Down Economics has been a main feature of Republican philosophy since before Reagan was born. FDR blasted trickle down economics in his acceptance speech to the Democratic convention in 1932. It has never worked as a stimulant to economic growth and never will because it is based on a poor understanding of how our economy works. The only thing it does is to make the rich richer and the poor poorer.

  31. Did you really get a Bush tax cut? Did your taxes go down at all as a result?

  32. Bayard Waterbury

    The voting patterns are due to two facts: (a) there are only two parties which put candidates on most ballots (really, as we all know, it’s just one with two sides to its greedy mouth); and (b) the media only focuses on what the party representatives or “pundits” say about almost any subject, and report that as truth or valid opinion. The American people (I mean sheep) just go along, as if the “free” press is protecting them with the truth. What a load of hogwash they are being sold. Anyone who ever debated knows that extreme position are prima facie incorrect. The extremes are just that and not truth.

  33. Bayard Waterbury

    James, superb try, man!! We who have come to know the President by both his nature and his core philosophy know that he will make a compromise on this issue before even going into “battle” to fight for us. My belief is that he has no gonads at all. He’s terrified to stand up for what is right for the electorate, or, what I really believe is that he doesn’t want to anger the wealthy elite oligarchs with whom he loves to rub elbows. Somehow, deep in his nature, he is terrified to stand up and be counted. This means that he will do whatever doesn’t cause a row. And we know that the forces allied against the right choice are not afraid to draw and shoot first. It’s over, James. Admit it. For all of your effort, it will have zero effect. I’m not being cynical, just realistic. I watch every day while our national government throws logic, reason, diligence and honor out the window.

    There’s a song on the Beatles White Album which describes what happens next.

  34. Because earning money outside of “employment” is a gentleman’s perogative.

  35. gerold k.b. weber

    Great piece, James !

    Obama should let the Bush tax cuts expire, and use the saved amount for equal stimulus checks to all households.

  36. Yes. I am beginning to see Obama as a tragic figure. His character, and the choices he has made to become who he is, have led him into an impasse, and I feel he is in danger of quietly coming apart in the next two years.

  37. @William King: You say Trickle Down Economics “has never worked as a stimulant to economic growth and never will because it is based on a poor understanding of how our economy works. The only thing it does is to make the rich richer and the poor poorer.”

    I would say TDE is based on an excellent understanding of how our economy works, and TDE always does precisely what it is designed to do.

    The term itself is insulting (makes me think of fatcat bankers and industrialists peeing on the serfs laboring below) and then THEY claim anyone who does like it is guilty of waging “Class Warfare.”

  38. Well said as usual James. I am often baffled by the fact that Obama doesn’t give speeches just as you suggest – it seems such a no-brainer.

    Unfortunately I am left wondering if we mistake his intentions – it is not he who is being the fool, but us for thinking he believes something he does not.

  39. The correct term is “tinkle down economics”…

  40. Tragic would imply he wanted one thing but got another. That may be true, but it’s getting harder to believe as time goes on…

  41. This is a perfect print-out of what to do to get the country back towards sane and growth economic policies – by doing exactly the opposite
    of what it says.
    I have never seen such a perfect compilation of foolish economic opinion backed by a complete absence of economic research.
    Congratulations. I hope the new Congress reads it and does exactly the opposite.
    The “economic series” at http://www.robbingamerica.com is a good place to start to recover from this article.

  42. Maybe I’m being way too simplistic and missing something that’s key, but isn’t the answer that these tax levels have been in effect since the start of the crisis, and their efficaciousness as a recovery measure has already been shown to be wanting?

  43. Winning the class war… “The Coming Sell-Out to the Super Rich and What It Means for the Rest of Us” by M Hudson @ http://www.counterpunch.org/ 11/15/10 Conclusion: “The vested interests have been fighting back for a century, and now see victory within reach with the perpetuation of the Bush tax cuts for the wealthiest 2 per cent, phase-out of the estate tax on wealth, the tax shift off property onto labor income and consumer sales, and slashing government spending on anything besides more bailouts and subsidies for the emerging financial oligarchy.”

  44. Helter skelter! BA!na,na,na,na,na,na!

  45. Excellent post to the Nth degree, James! It’s as though you’ve been reading my mind or mine yours…but I must say your spot on! Medicare, and Social Security are miraculously now on the “front burner” of all newspapers, and news networks 24/7. Why is that? President Obama has shown wheedle signs of extending the Bush #43 hideous, and sully-sulfurous draconian “Tax Cuts Legislation” too become permanent if he doesn’t grow a backbone! When I look back, and say to myself – what did these “tax cuts” accomplish in helping create jobs, and decreasing our Nat’l Debt? Repeat after me…”Absolutely Nothing…Squat…Zippo…Zilch! It’s laughable to actually think that the powers too be want to make these tax cuts permanent (as they surely will become once the GOP gains control of the Congress?) when it should be a no-brainer to abolish, and burn them in Hades (666) where they came from! Please realize they did nothing for the working stiff, and as you say James…they will create more despair for “Joe (Six Pack) and Mary (full time Walmart, and full time housekeeper) public” to make ends meet. Thankyou James for a superb, and fantastic post…yours truly :-)

    PS. Can you imagine cutting Social Security, Medicare, and every public program, and not touching Military cost…slashing, cutting, permanently lowering taxes to do it so that more American MNC’s can move offshore (53%+/+ of all the worlds MNC’s our American). Are these guys all dillusional?

  46. So are you Obamabots willing to slice off Obamacare to cut the zillions that program will cost before it even gets started? If it’s as good as advertised why is HHS granting all these waivers to Obama’s union pals? Giving more money to DC is like giving liquor to an alcoholic. The more money that flows their way the more ways they will find to spend it. Sadly, the only way to cut the deficit is to starve the beast. And please stop pretending the Democrats had no part in this financial meltdown. Remember, it was Barney Frank who wanted to “roll the dice a little more!” The Democrats had control of Congress and had the chance to reform Fannie and Freddie well BEFORE the meltdown. The congressional record is chock full of grandstanding Democrats defending Fannie and Freddie when regulatory reform really could have made a difference. They chose otherwise. Please stop the moral preening.

  47. Dear James,

    I’m doing exactly what my rich/banker sponsors tell me to do, just like everyone in congress and the senate are. Your concepts are quaint, but will never fly in the real world. I have myself to look out for here, you know?

    Sincerely,
    O

  48. Hope you don’t mind when it’s a program that benefits you that they cut. Or maybe one that benefits your aging, crippled parents? Perhaps one that benefits every American that isn’t part of the upper 20%?

    I’m all for cutting a pound of fat, but keep in mind that the bankers and the rich will be deciding where it gets cut from in the end. That could be more painful than we expect.

  49. Kleptco writes: “Republicans are certainly inspired by the prospect of more regressive taxes but what really excites them are the resulting huge deficits that require “grownup” decisions to finally raze the new deal”.

    That’s been the demolition plan, all along, hasn’t it?

    They are now free to roam around the cabin, and resume the fascist overthrow of USA, so well-done by Obama’s predecessor.

  50. The Republican leadership claims that small businesses would be hurt with the President’s ceiling of $250,000. Why shouldn’t he raise the ceiling to $1,000,000? If the Republican leadership says that that compromise is unexceptable, then he should do nothing and let them expire and “put on his man pants”.

  51. Word Woop! The republican reich is bent on destroying America and implementing a fascist state with the predatorclass and predatorclass oligarchs owning and controlling the wealth and resources of the the nation, and enslaving the people into a future of deprivation, servitude, enforced silence, and debtors prisons.

    Obama has no courage. The democratic party and socalled democratic leaders are equally impotent. No one will fight for the peoples best interests against a fascist gop delirious with greed and pathological dominance disorders and intent on crushing the life out of poor and middleclass America.

    The people alone must right these monstrous wrongs!

    {“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are life, liberty and the pursuit of happiness. That to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed. That whenever any form of government becomes destructive to these ends, it is the right of the people to alter or to abolish it, and to institute new government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their safety and happiness.”}

    In a world where there are no laws, – there are no laws for anyone predatorclass biiiiaaatches!!!

  52. The Bush tax cuts were sold as job creators and revenue generators. Neither appeared.

    Where are all of the jobs these tax cuts created? Anyone see any jobs? Bush has one of the worst net job creation records, 3+ million. So where are the jobs?

    Where is the extra tax revenue from the Bush tax cuts? He added almost 4 Trillion to the debt and took the Clinton budget surplus and turned it into a deficit of 1.4 trillion.

    What happened to Cheney’s deficits don’t matter mantra. You remember, he told us the Reagan proved that deficits don’t matter.

  53. Agreed. I am a middle class guy who says – Yes, let all the tax cuts expire. And while we are at it, can we PLEASE talk about slashing defense spending (our largest corporate welfare program)and ending unnecessary wars including Aghanistan.

  54. Oh, puh-leeze, Guinness54. All that money flowing to DC that you complain about is gushing right into corporate coffers, and you know it perfectly well. Whether health insurance companies or Wall Street “masters of the universe,” they custom-craft the legislation to their benefit and both parties kow-tow. C’mon.

    When and where did Dubya cut government spending? By invading Iraq? Yeah, good one.

  55. THIS IS AN EXCELLENT SUMMARY OF THIS CRUCIAL DEBATE. IF MIDDLE TO LOWER INCOME PEOPLE ARE WILLING TO FORGOE THEIR TAX CUTS, THEN MILLIONAIRES & BILLIONAIRES SHOULD TOO.
    ‘TRICKLE DOWN’ ECONOMICS IS ‘BS’. IF IT WORKED, WHY HASN’T ANYTHING “TRICKLED DOWN” IN THE 8+ YEARS OF BUSH TAX CUTS??
    REPUBLICANS & INDEPENDENTS WHO WANT TO PRESERVE TAX CUTS FOR THE WEALTHIEST 1% OF AMERICANS ARE BASICALLY SAYING ‘THE HELL WITH OUR COUNTRY, OUR KIDS & THEIR FUTURE’! THEY WOULD RATHER HAVE THEIR YACHTS AND COUNTRY CLUB MEMBERSHIPS! THESE SELFISH NARROW MINDED INDIVIDUALS SHOULD TAKE A LESSON FROM HISTORY – SPECIFICALLY THE FRENCH REVOLUTION! IF THEY CONTINUE THEIR “MARIE ANTIONETTE ATTITUDE” (‘LET THEM EAT CAKE’), TODAY’S BILLIONNAIRES & MILLIONNAIRES
    MAY WELL HAVE SOMETHING OTHER THAN THEIR TAXES CUT (OFF)!!!

  56. Then capital gains should be adjusted for inflation. We should not be taxed for government created inflation. The politicians don’t need more incentive to create inflation.

  57. I would like to hear a clear and concise explanation from Mr. Kwak of why he thinks that tax revenue funds U.S. public sector spending. I would like to see a point by point explanation that is not based upon the moral thesis that spending money we don’t have is wrong. One clue is that money we spend, we never had, because it didn’t exist. When the U.S. Government collects money it is destroyed.

    Deficit terrorism theology is so pervasive that it is never challenge by people we typically credit with good sense and an inquisitive mind. Not one time have I seen an explanation of where the exact revenue flows, sits, and then is spent.

  58. Good point.

  59. So there’s this little book you might want to read, available for free, called “SEVEN DEADLY INNOCENT FRAUDS OF ECONOMIC POLICY” by WARREN MOSLER. Just google it.

    Maybe you already know about it. I think he agrees with you.

  60. Guinness, if you bothered to read up, you’d learn that health care reform is a deficit reducing measure. But thanks for playing.

  61. Yes, economics is more religion than science.

  62. Scathew, I have reservations about him that way too. But maybe he is just a guy who overcame the handicaps of his birth with sheer intelligence and adaptability and charm, using his strength of will to rise above all personal obstacles, and he genuinely thought he could solve the world’s problems the same way. Knowing, from his Kissinger days onward, how things are. Like Bloomberg said, the most arrogant man I ever met.

    But true leadership requires a tough will focussed not on overcoming personal obstacles but on making things happen. Obama has achieved the pinnacle of power, there to be humiliated because he can inspire but he cannot lead. The Swamp is too rotten to be moved by sheer intelligence. That is why I think he may come apart — unless he is able to restructure his character and learn how to do power. I doubt that he has it in him because he needs to charm.

    I just watched the movie Defiance and that is a good portrait of a man learning to do power in order to protect his people. I think Rahm would like it.

  63. IS THE SMARTER THING TO DO, I WAS SAYING FOR LONG TIME,
    LET ALL OF THEM EXPIRE .NOW, AND NEXT YEARS W CAN COME BACK AND GIVE TAX CUT FOR THE MIDDLE CLASS ,ANS SMALL BUSINES. AND REPUBLICANS CAN’T DO ANYTHING TO STOP US.

  64. THIS GUY IS ONE OF THOSE WHO BENEFITS FROM BUSH TAX CUT, HE IS A SELFISH PERSON , HAVE A NERVE TO SAY THAT, HE MUST BE BILLIONAIRE WORRY ABOUT HIS GREED MONEY.THE EGYPTIANS TRY,DON’T WORK,EVEN BROUGHT MONEY CASH,GOLD EVEN FOOD, WENT YOU DEATH,YOU COME EQUAL TO US ,THE POOR, THE GREEDY RICH WE ARE ALL HUMAN.

  65. IS THE SMARTER THING TO DO, I WAS SAYING FOR LONG TIME,
    LET ALL OF THEM EXPIRE .NOW, AND NEXT YEARS WE CAN COME BACK AND GIVE TAX CUT FOR THE MIDDLE CLASS ,AND SMALL BUSINESS. AND REPUBLICANS CAN’T DO ANYTHING TO STOP US .

  66. IS THE SMARTER THING TO DO, I WAS SAYING FOR LONG TIME,
    LET ALL OF THEM EXPIRE .NOW, AND NEXT YEARS WE CAN COME BACK AND GIVE TAX CUT FOR THE MIDDLE CLASS ,AND SMALL BUSINESS. AND REPUBLICANS CAN’T DO ANYTHING TO STOP US .IF PRESIDENT OBAMA WILL CAVE TO THE REPUBLICANS,AND GIVE THEM EXTENTION TO BUSH TAX TO THE RICH, BETTER
    RESIGN NOW. BECAUSE HE IS A DEATH DUCK,NO DEMOCRAT WILL VOTE FOR HIM.

  67. ONE THING ,NO ONE EVER HARDLY TALK, ABOUT THE IN AFGHANISTAN,AND IRAQ WAR ,THEIR IS OUR PROBLEMS IS ,THIS BUSH WAR CREATED THE SITUATION WE ARE NOW.BUSH IS PERSONAL RESPONSIBLE FOR THIS SITUATION HE INVENTED THIS WARS WITH LIES ,AND NOW WHOLE COUNTRY ECONOMY WENT TO HELL WE SPEND TRILLIONS DOLLARS,REMEMBER BUSH WHAT SAY IT,DON’T MISS WITH TEXAS ,WENT ALONE AGAINST ALL ADVISES, BUSH THE MUY MACHO MAN FROM TEXAS, THIS WAR STILL GOING ON, AND STILL COST US SWEAT AND BLOOD, AND NO ONE CARES CARES,ALL READY ARE IN THE 12 TRILLIONS DOLLARS,MONEY WE NEED HERE, AND THE REPUBLICANS BLAME THE ECONOMY
    ON THE SOCIAL SECURITY ,AND MEDICARE ? AND HAVE A DEMOCRAT ,PRESIDENT OBAMA A DEMOCRAT CONGRESS, AND SENATE, AND CAN’T DO NOTHING RIGHT ? WHY OBAMA WON’T STOP THIS WAR NOW,? 100 % . WHERE THE MONEY WENT ,AND IS GOING NOW TOO,NEVER STOPPED FOR 9 YEARS..AND OBAMA CAN’T SEE IT, IF OBAMA WON’T LET THE BUSH EXPIRE. HE WILL BE KICK OUT OF OFFICE,THE EXT ELECTION.IF OBAMA WANT TO BE REMEMBER AS A HERO, MUT DO THIS , LET BUSH TAX EXPIRE ,AND END THE WARS IN MIDDLE EAST, AND BRING ALL TROOPS HOME, MEAN,ALL OF THEM DON’T LIVE ONE SINGLE SOLDIER ,ALL .ALL MEANS EVERY ONE.SAVE AMERICA ECONOMY NOW, AND BRING CHARGES AGAINST BUSH ,AND CHENEY FOE CRIMINALS,SHOULD BE SEND TO PRISON. OBAMA BETTER LISTEN TO OUR VOICES, NOT THE REPUBLICANS.IF YOU WANT TO BE RE-ELECTED.IF NOT BYE ,BYE MR OBAMA.
    YOU ARE BIG DESSAPOINTED TO US SO FAR, BUT YOU HAVE 45 DAYS TO CORRECTED,IF NOT, YOU WILL REMEMBER ANOTHER WORSE PRESIDENT ,THEN SWEET JIMMY CARTER

  68. James,
    I believe that capital gains and dividends should be taxed as income. Much of the money from the tax break for capital gains has not been used to “create jobs, etc.” It supplied some of the fuel for asset inflation. Public corporations often buy back their own stock, benefiting management that have stock options, and arbitraging tax rates….no job increasing investment their.
    Thee can be little public investment in infrastructure or education while we are diverting so many assets to the military and medical care.
    We divert so much of scarce engineering assets toward the military, just who is going to invade us?
    For medical spending, give big pharma the boot, develop a formulary for Medicare drug benefits. Paying 100% is scandalous.
    Nuff said.
    Will

  69. Just let the patient die. I agree with the post and with the Democrats in the House and Senate sitting on their hands. This perhaps is a good lesson for the upcoming Congress.

  70. Does any one know of any useful reading material that is a good introduction to understanding tax policies in the U.S. (and associated social impacts) – maybe, history, contemporary competing ideas, thoughts/opinions similar to those expressed above (and the other side of this argument)? Something akin to Sowells ‘Basic Economics’ (save the proselytizing) would be really helpful.

    Thanks in advance,

  71. I have a problem that started at the passing of my husband and I am at the mercy of Wells Fargo Bank. When I file a return IRS they keep all of my refund. My husband had a $17,000 interest check I didn’t know about and they are charging me $24,000 or a lien on my home. I tried for a loan modification with Wells Fargo Bank and they bought my loan and said the new owner would not modify the loan so they sent me a “Loan Modification” that just stated the original loan and left my husbands name on the loan and raised the interest and brought me current and raised my payment to $1500 per mo and the balance is $130,000? I really need some help to get out of this mess.
    Sincerely,

    Ellen

  72. All of this assumes that Obama wants to help the middle class and there is no evidence for that any where. Not a chance the precious isn’t going to sin the extension of all tax cuts and then tell you he had no choice.

  73. If Thomas Sowell’s Austrian nonsense is useful reading for you then you may want to try the Mise website. If you are interested in learning microeconomic concepts that reflect real world behavior try Bill Mitchell’s blog. mtc.

  74. Ray,
    Calling Sowell “nonsense” doesn’t make it so. How about a civil explanation?
    Thank you.
    Will M

  75. Taking Chapter 16, in “Money and the Banking System,” (2004) for example he states that banks serve as intermediaries to transfer savings from one individual to another. It is more accurate to say that banks loan to customers they think will repay the loan by crediting accounts. That loan is not dependent on another customer’s savings balance or the bank’s reserves. He also states that the loan adds to the total money supply, but it actually is a wash because it is offset by a liability accounting entry in the bank’s books.

    He implies that taxes are transfers to the government that is then used for purchases. The U.S. government is actually able to purchase because it is the monopoly supplier of money. It is a policy question of whether they should spend and on what. At one point he states that the problem with money created by the government is that politicians are tempted to spend more. The bit of nonsense is that there are no other ways to create money. Private sector money just moves between private and foreign accounts. Loans are not creating money.

  76. Bruce E. Woych

    http://www.thedubyareport.com/bushbin.html

    Read it and weep! The country has been looted twice and now we have to continue to accept this distortion of politicized wealth?

    Here’s some truthful polemical American history:

    http://www.greedandgood.org/BookPDFs/gghistoric.pdf

    (excellent summary review of America’s real Baseline Scenario)

    http://en.wikipedia.org/wiki/Regressive_tax (full page review for “Regressive Tax” wikipedia)

    http://search.aol.com/aol/search?s_it=topsearchbox.search&v_t=webmail-hawaii1-standardaol&q=regressive+taxes+critique

    (very nice power point style presentation)

  77. Bar Stool Economics

    Suppose that every day, ten men go out for beer and the bill for all ten comes to $100 and If they paid their bill the way we pay our taxes, it would go something like this:

    The first four men (the poorest) would pay nothing.
    The fifth would pay $1.
    The sixth would pay $3.
    The seventh would pay $7.
    The eighth would pay $12.
    The ninth would pay $18.
    The tenth man (the richest) would pay $59.

    So, that’s what they decided to do.

    The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. “Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily beer by $20.” so drinks for the ten now cost just $80.

    The group still wanted to pay their bill the way we pay our taxes so the first four men were unaffected…They would still drink for free…But what about the other six men – the paying customers? How could they divide the $20 windfall so that everyone would get his ‘fair share?’…They realized that $20 divided by six is $3.33…But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being paid to drink his beer..So, the bar owner
    Suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay.

    And so:
    The fifth man, like the first four, now paid nothing (100% savings).
    The sixth now paid $2 instead of $3 (33%savings).
    The seventh now pay $5 instead of $7 (28%savings).
    The eighth now paid $9 instead of $12 (25% savings).
    The ninth now paid $14 instead of $18 (22% savings).
    The tenth now paid $49 instead of $59 (16% savings).

    Each of the six was better off than before…And the first four continued to drink for free…But once outside the restaurant, the men began to compare their savings.

    “I only got a dollar out of the $20,”declared the sixth man. He pointed to the tenth man,” but he got $10!” “Yeah, that’s right,” exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got ten times more than I!” “That’s true!!” shouted the seventh man. “Why should he get $10 back when I got only two? The wealthy get all the breaks!” “Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. The system exploits the poor!”

    The nine men surrounded the tenth and beat him up.

    The next night the tenth man didn’t show up for drinks, so the nine sat down and had beers without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!

    And that, ladies and gentlemen, journalists and college professors, is how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up anymore. In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.

    David R. Kamerschen, PhD.D.
    Professor of Economics
    University of Georgia

    For those who understand, no explanation is needed.
    For those who do not understand, no explanation is possible.

  78. @ Rob Ryan___How many beers? Who, whom…reduces cost by said %? America wasn’t built on 1% ownership. Let em go to wherever…they’re already there? Remember Sir “Know-it-all” it was the 1% that created the welfare class for anti-labor (Marxism)! I hope you understand that..otherwise ?